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The Political Economy of Social Security

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  • Georges Casamatta
  • Helmuth Cremer
  • Pierre Pestieau

Abstract

We consider a two‐period overlapping generations model in which individual voters differ by age and by productivity. In such a setting, a redistributive pay‐as‐you‐go system is politically sustainable, even when the interest rate is higher than the rate of population growth. The workers with medium wages (not those with the lowest wages) and the retirees form a majority which votes for a positive level of social security. This level depends on the difference between the rates of population growth and interest as well as on the redistributiveness of the benefit rule.

Suggested Citation

  • Georges Casamatta & Helmuth Cremer & Pierre Pestieau, 2000. "The Political Economy of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 503-522, September.
    • Handle: RePEc:bla:scandj:v:102:y:2000:i:3:p:503-522
    DOI: 10.1111/1467-9442.00212
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    References listed on IDEAS

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    1. Boadway, Robin W & Wildasin, David E, 1989. "A Median Voter Model of Social Security," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(2), pages 307-328, May.
    2. Conde-Ruiz, Jose Ignacio & Galasso, Vincenzo, 2005. "Positive arithmetic of the welfare state," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 933-955, June.
    3. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February.
    4. Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, December.
    5. Hu, Sheng Cheng, 1982. "Social Security, Majority-Voting Equilibrium and Dynamic Efficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(2), pages 269-287, June.
    6. Georges Casamatta & Helmuth Cremer & Pierre Pestieau, 2000. "The Political Economy of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 503-522, September.
    7. Veall, Michael R., 1986. "Public pensions as optimal social contracts," Journal of Public Economics, Elsevier, vol. 31(2), pages 237-251, November.
    8. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. "Political sustainability and the design of social insurance," Journal of Public Economics, Elsevier, vol. 75(3), pages 341-364, March.
    9. Tabellini, Guido, 1990. "A Positive Theory of Social Security," CEPR Discussion Papers 394, C.E.P.R. Discussion Papers.
    10. De Donder, Philippe & Hindriks, Jean, 1998. "The Political Economy of Targeting," Public Choice, Springer, vol. 95(1-2), pages 177-200, April.
    11. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-388, September.
    12. Casamatta, Georges & Cremer, Helmuth & Pestieau, Pierre, 2000. " The Political Economy of Social Security," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 503-522, June.
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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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